Credit counseling

Full definition

Credit counseling is a professional service designed to help individuals understand and manage personal debt. The National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) are the two main accrediting bodies for nonprofit credit counseling agencies in the U.S. A credit counseling session typically includes a review of your income, expenses, debts, and assets; a recommendation on the best path forward (budgeting alone, a debt management plan, or a referral to a bankruptcy attorney); and if appropriate, a proposal for a debt management plan. Debt management plan (DMP): If your unsecured debts (credit cards, personal loans) are still manageable but you cannot afford minimum payments at current interest rates, an accredited counseling agency may negotiate with your creditors to reduce interest rates (often to 6-9% from 20%+) in exchange for a fixed monthly payment to the agency, which then distributes it to creditors. Creditors agree because they recover more than from a default or bankruptcy. DMPs typically run 3-5 years. Fee structure: Initial consultations at NFCC/FCAA agencies are typically free. DMP monthly maintenance fees average $25-$35/month and are regulated by state law. For-profit credit counseling companies often charge much higher fees and may not be able to negotiate the same rate reductions. Verify agency accreditation before paying any fee. Bankruptcy distinction: Credit counseling is a prerequisite for filing bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA, 2005). Both a pre-filing counseling certificate and a post-filing debtor education certificate are required for Chapter 7 and Chapter 13.

• Debt settlement
• Forbearance
• Fair Debt Collection Practices Act (FDCPA)